Now Updating
In re Zachary Allen ; Tiara Donegan

Summarizing by Lars Fuller

In re Jackson

2016 WL 4147641 (6th Cir. BAPp 2016)
Creditor does not violate discharge injunction by reinstating pre-petition foreclosure action post-discharge where action seeks only in rem relief, even where there is no equity available for foreclosing creditor
Procedural context:
After entry of discharge, creditor resumed state court proceeding to foreclose on Condominium Association lien. Debtor reopened Bankruptcy Case and sought sanctions based on alleged violation of Discharge Injunction. Bankruptcy Court entered Order holding Creditor in contempt of discharge injunction and awarding sanctions. On appeal, Sixth Circuit BAP reversed.
Debtor owned condominium unit that was encumbered by a first mortgage on which the balance owed far exceeded the value of the unit; and a second lien held by the Condominium Association for unpaid assessments and charges. The Association began foreclosure proceedings and Debtor filed for relief under Chapter 7. After Debtor received a discharge, the Association reinstated the foreclosure proceedings based on both pre-petition defaults and post-petition unpaid assessments but clearly limited relief to in rem relief and stated that Association did not seek to recover from Debtor personally and acknowledging that Debtor was discharged from personal liability for pre-petition assessments and charges. Debtor reopened the Bankruptcy Case and filed a Motion to hold the Association in contempt alleging that the foreclosure was merely disguised effort to force Debtor to pay pre-petition, discharged assessments as Unit itself had no value above amount owed to first mortgage lender and as such Association would not recover anything from the foreclosure process. Bankruptcy Court agreed that foreclosure of the Unit, where the first mortgage balance far exceeded the value of the Unit, was disguised effort to force Debtor to pay discharged assessments or risk losing home, and awarded sanctions against Association. On appeal, the BAP concluded that the Association retained its lien post-discharge and the Association had full right to foreclose lien even regardless of whether there was equity in property. Association had duty to ensure that unit owners including Debtor paid assessments and to take actions to enforce collections including foreclosures. Even if foreclosure sale would not produce funds for association, sale would allow Association to find new occupant who would pay ongoing assessments. Association efforts were expressly intended not seek payment from Debtor for discharged obligations, but only to enforce Association's statutory duties including collection of ongoing assessments through enforcement of liens that passed through bankruptcy.
Delk, Humphrey, Opperman

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